Financial markets can be challenging to understand. And when markets enter a “bad news is good news” cycle, it becomes even more challenging to follow along. Stock prices rallied at the end of April after the Commerce Department reported that first-quarter gross domestic product (GDP) rose at a 1.1% annualized rate. That was well short of the 2% that economists were expecting.1 Then, a few days later, the financial markets shrugged off news that a regional bank was rescued by federal regulators and was acquired by a multinational U.S. bank. It was the third bank issue in the past 60 days.2 So why would stocks rally on a bad GDP report and news of another bank being closed? With the GDP report, Wall Street concluded that despite the lower-than-expected number, the overall report showed the consumer was still spending, so the “bad news” had a “good news” silver lining. Remember, consumer spending accounts for about 70% of total economic activity.3 With the regional bank, the markets focused on the good news from the winning bidder, which expressed confidence that the regional bank crisis was ending.2 |
If you respond, “that’s nonsense,” you’re not alone. When the market enters a “bad news is good news” cycle, it can be difficult for even the most seasoned investors to anticipate how markets will react to any economic update or news event. |
1. CNBC.com, April 27, 2023. “U.S. GDP Rose at 1.1% Pace in the First Quarter as Signs Build that the Economy Is Slowing” |
Market Assesses First Republic, GDP Report
